Navigant Research Blog

Navigant Research’s data on the microgrid market has historically pointed to North America being the mother lode. The host of state programs supporting community resilience microgrids would seem to confirm this conclusion. But there is a counter argument that the developing world is the best microgrid market, and that’s why SunEdison’s move into northern India is so significant.

I think the Asia Pacific region’s microgrid market is likely to ultimately surpass North America, but not until 2030 or so. Recent data provided by Aalborg University in Denmark shows that China alone is planning on installing 4.3 GW of new microgrid capacity over the next 5 years, which bolsters this opinion. But China’s market is problematic due to the prevalence of nationalized grid companies and other unique vendor challenges.

To the Subcontinent

And then there is India. As one telecom infrastructure provider pointed out, there are more planned telecommunications tower deployments in India as there are in all African nations combined! (These telecom towers often serve as anchor loads for microgrids.) Couple that with a government policy of deregulating all microgrids 1 MW and less, and the stage is set for rapid innovation at the lower end of the microgrid market spectrum.

Back to SunEdison … Working with on-the-ground innovators, such as OMC Power, the company hopes to bring online 5,000 microgrids, ranging from 10 kW to 1 MW, by 2020, providing power to 20 million people. While it’s fascinating that SunEdison is moving into this market, given its success with the power purchase agreement model in mature economies such as the United States, largely through solar PV leasing arrangements, even more interesting is its choice of partners: OMC Power.

Having begun in 2011 by focusing on the concept of bringing power to rural developing nation markets, such as India, employing e-power device business models, OMC Power is now changing its tune. In the past, the company focused on daily home delivery of solar-charged portable energy products (e.g., LED lanterns); its customers paid the equivalent or less as they had paid for diesel or kerosene. The company financed, built, owned, and operated hybrid off-grid micro-power plants that tap solar, wind, or biofuels to provide alternating current (AC) power to telecom sites and portable direct current (DC) power to local villages.

Finding Scale

According to chief marketing officer Par Almqvist, the company’s new direction is a natural evolution. “Once most communities get power, they want more of it,” Almqvist said in a phone interview. In order to get to the right price point, it has become apparent to us we need to centralize power production. One must find an efficiency of scale.”

Almqvist still sees a role for e-power products and nanogrids, and in some cases, such options are the only viable path for electrification. Yet to reach scale, other business models must also be deployed. “We have proven that the perception that the bottom of the pyramid is a risky clientele is not necessarily accurate. What we’ve discovered is that, especially in rural northern India, people will pay for what is an essential service, especially when they can save money.”

The benefits go beyond economics. The mix of solar PV and deep cycle batteries will also allow telecomm operators to reduce diesel generation to less than an hour a day. This kind of result prompted the Rockefeller Foundation to announce another program that OMC Power is a part of–this one designed to bring power to 1,000 villages.

In June, Prime Minister of India Narendra Modi announced the country’s goal for the development of 100 smart cities. Fundamental to this vision is the development of smart buildings. According to a recent article by Surabhi Arora, director of research services for Colliers International, “The advantage of following smart building concept is that they can be considered as future-proofed assets … The shift to smart buildings has only just begun, and will now accelerate very quickly with proactive government support. It is the time for forward-thinking developers and landlords to prepare themselves to lead, rather than follow, the change.”

My colleagues James McCray and Lauren Callaway recently commented on the drive to create a more resilient and smarter grid in India. As with that effort, India will face some inevitable challenges on the path toward developing smart buildings. According to the United Nations, Indian cities will see populations burst with an additional 404 million people by 2050. This rate of urbanization will put unprecedented pressure on city infrastructure and resources. Smart city and smart building goals speak to the priorities for sustainability, climate change readiness, and human welfare, but economic commitments will be critical to see these objectives come to fruition.

Outside Forces

The international community has recognized the opportunities in India, and Japan, the United States, and Singapore are major government allies for the Indian smart cities agenda. According to an article in Forbes, the Delhi Mumbai Industrial Corridor (DMIC), a 1,000 kilometer stretch between Delhi and Mumbai, will be a major focus of the smart cities development plan. It’s projected that the new manufacturing and commercial centers within the smart cities will require upwards of $90 billion from international investors. The smart city development in this corridor is integral to the nation’s vision of becoming the “Global Manufacturing and Trading Hub,” according to the DMIC Development Corporation, the government partnership between India and Japan. The international interest for participation in the development of these smart cities also stems from major technology companies such as Microsoft and IBM.

A Chicago a Year

The Indian government is pushing the smart city agenda forward through an important round of stakeholder planning meetings that began at the end of December. The government recognizes that accomplishing its vision will be no small feat; as one government official explained, “a new Chicago needs to be built every year.” The political commitment, international interest, and growth demands in India represent a major opportunity for smart building technology companies. India’s smart cities movement could demonstrate how smart buildings deliver significant cost savings through energy efficiency and strategic facilities management, and could become a hub for the spokes of the smart city infrastructure.

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In December, ABB announced a $55 million project win in the Indian states of Behar and West Bengal. ABB will install both transmission and distribution (T&D) substations, incorporating ABB substation technologies with fiber optic telecommunications systems and new substation automation systems. As a part of an overall goal to meet growing demand, improve access, and reduce losses, the facilities will support generation and other transmission investments in Northern India. And ABB isn’t alone – big wins in India have also been announced by Alstom and Tata Consulting Agency.

India has seen a lot of activity in terms of electric infrastructure investment over recent years, and the nation is on its way to becoming a global leader in the installation of smart grid technologies. As my colleague James McCray describes, these investments are benefiting from several large-scale efforts to expand electrification, reduce the environmental impacts of generation, and decrease power system losses. In 2009, The World Bank and POWERGRID (India’s transmission operator) introduced the Fifth Power System Development Project, a series of transmission investment projects set up to bolster India’s then-troubled economy through providing resources for industrial and agricultural enterprises. Now in its fifth year, the planned $16 billion program has funded regional projects in both Northern and Southern India.

Acceleration

In terms of expanding and updating its distribution grid, India’s central government has begun the second stage of its Restructured Accelerated Power Development and Reform Programme (also known as R-APDRP). This two-phase project has supported individual state utilities in an initial stage of data gathering for information and planning, as well as the aforementioned second stage of new grid construction and upgrades, including advanced metering infrastructure and distribution automation rollouts. Investments under this plan are expected to total around $10 billion.

If you haven’t noticed yet, the sums of money involved are tremendous. The global smart grid market for distribution was forecast at $15 billion in 2014, indicating that if India is allocating between $10 to $20 billion (of the $26 billion total for T&D) over the course of a few years, that would make the country one of the world’s largest spenders, the United States, Western Europe, and China. Yet, India’s Power Minister, Piyush Goyal, stated in November that India needed to put even more into its T&D infrastructure – $50 billion over the next 5 years.

The Big Shift

India has several primary drivers for investment: growing demand and a need to increase electrification; reduction of fossil fuel consumption (the majority of India’s electricity is coal-fired according to the U.S. Energy Information Administration, and the country wants to install more solar); and reliability (India has suffered heavily from rolling blackouts in recent years). At the moment, India’s grid is constrained due to limited and aging infrastructure – some estimate that generation plants are utilized as little as 70% because of this.

Investing in new infrastructure and smart grid projects, India is targeting efficiency while simultaneously extending its grid. For the time being, India will increase coal-fired capacity to meet its demand challenges, but the country is also promoting renewables both directly (through government investment) and indirectly as it improves its transmission infrastructure. With these investments and states such as Gujarat leading the way in progressively supporting renewables, it is possible that India could soon shift from an underdeveloped energy infrastructure heavily dependent on fossil fuels to a leading example of clean and efficient energy at a national scale.

Many of us here in the United States have little appreciation for the tremendous size and opportunity for electric transmission and distribution system technologies in the Asia Pacific region. To use Geoffrey Moore’s analogies regarding how technology markets develop, there are the 500-pound gorillas, two or three followers, and a number of other wannabes.

Taking that metaphor to the regional market level, the Asia Pacific market has two significant gorilla countries, India and China, some followers like Japan, Australia, and Indonesia, and then the other wannabe countries. Electric transmission technology vendors have an opportunity-rich environment across the region, but the sheer scale of the opportunities and the sophisticated plans in India and China present the biggest gorillas. To illustrate this point, I’ll focus on India, where the national transmission planning process is most transparent.

The 1.2 Billion

India currently has a population of 1,264,360,000 people, representing 17.5% of the world’s population, or 386 people per km2, of which only an estimated 30% have electricity. The country’s landmass is approximately 3,287,263.00 km2, which is about half the size of the United States. India currently has over 220 gigawatts (GW) of generation capacity, a number that is expected to grow to 425 GW in 2022, with the addition of up to 66,000 kilometers of transmission lines and 90 new substations. Most of the current electric transmission system in India is in the 135 kilovolt (kV) to 450 kV range, and it has significant reliability issues due to weather, introduction of intermittent renewables, and aging infrastructure.

The fascinating point here is that Power Grid India, the national transmission system operator, is now building out a high-voltage transmission superhighway that will serve as the backbone for India’s rapidly expanding transmission and distribution grid. This plan is exceptional because of the use of extra-high-voltage 800 kV high-voltage direct current (HVDC) and 765 kV high-voltage alternating current (HVAC) systems – on a scale seen nowhere on the globe except in China. The following graphic shows the overall configuration.

Planned HVTSs under Implementation, India

(Source: Power Grid Corp. of India Ltd.)

The Way Forward

Adding to the tremendous scale, India is specifying and using the latest technologies, including state-of-the-art flexible AC transmission system (FACTS) devices such as static VAR compensators (SVCs) and static synchronous compensator (STATCOMs) that are still controversial in some regions in North America, such as PJM, as well as synchrophasor and wide area situational awareness (SWASA) technologies and solutions to better manage the transmission grid in real-time. These technologies and markets are discussed in a series of Navigant Research reports from 2014, including Flexible AC Transmission Systems and High Voltage Transmission Systems.

India recently deployed over 1,300 phasor measurement units (PMUs), giving the country one of the largest current PMU deployments in the world, showing leadership in advancing these new and powerful technologies.

For the big three electric transmission technology companies, ABB, GE/Alstom, and Siemens, as well as the other technology companies like Schneider, S&C, Mitsubishi, Toshiba, and other new entrants, the rapid expansion of India’s transmission system represents a tremendous revenue opportunity. For the population of India, it represents electrification on a large scale a much more reliable and resilient power grid – and a path to a much higher standard of living.